Jakarta – Indonesia will issue a government decree aimed at clarifying what oil and gas contractors can claim under a scheme to reimburse their operational costs, including exploration spending, the finance minister said on Thursday.
Indonesia's cost recovery scheme reimburses oil firms for exploration and production costs, although the billions of dollars paid out have come under political scrutiny at times and the country's parliament has intervened to bring in limits.
"The decree will contain special rules for oil and gas, especially on cost recovery to calculate sharing and tax," Finance Minister Sri Mulyani Indrawati told a parliamentary hearing. "In this decree, the cost will be based on normal principles of business and tax rules," she said.
Indrawati said the government had previously issued a "negative" list of items and services that oil and gas contractors working in Indonesia could not be reimbursed for. The list includes the cost of employees, expatriate costs, as well as costs for legal and tax consultants, and community development expenditure.
"The decree is not aimed to intimidate those claiming costs. If the cost is related to exploration, exploitation and development, it can be claimed from the government," Indrawati said.
Indonesia expects spending by contractors of oil and gas exploration in the country to fall to $2.3 billion this year, down about 15 percent from an estimated $2.7 billion in 2009, the country's oil watchdog has said previously.
Crude production, which was about 1.5 million barrels per day in the 1990s, has nearly halved and Indonesia has become a net importer of crude oil in recent years.
Major global resource firms such as Chevron, ConocoPhillips and Total operate in Indonesia, but the country has struggled to attract fresh investment and to develop new fields. Indonesia produced 949,100 bpd of crude oil and condensate in 2009, missing a target of 960,000 bpd in the year.
An energy ministry official, who declined to be identified, said previously a target of producting 965,000 bpd of crude and condensate this year would be very difficult to achieve since output from older wells was falling about 10-15 percent per year.
Indonesia has offered new exploration rights and has said it will provide new incentives to oil and gas investors, including more favourable tax treatment and a better production split, in order to encourage exploration.
But industry insiders have said the incentives may not be sufficient, particularly since many of the unexplored fields are in remote locations and often in deep water, and so expensive to develop.